Act cautiously on cross-strait pact

By Kuo Chen-hero 郭振鶴  / 

Wed, Jul 03, 2013 - Page 8

On June 21, Taiwan’s Straits Exchange Foundation (SEF) and China’s Association for Relations Across the Taiwan Straits (ARATS) signed a cross-strait service trade agreement. Taiwan agreed to open up 64 service sectors, including the finance, healthcare and telecommunications sectors, while China agreed to open 80 service sectors, including the finance, healthcare, telecommunications, e-commerce, transportation and tourism sectors.

The public has questioned the government’s negotiation process and communication among agencies based on concerns about the trade pact’s impact on Taiwanese businesses.

In the past, competition from China’s low prices has caused many Taiwanese manufacturers to either close down or relocate to other countries, including to China. Today, the government has agreed to deregulate Taiwan’s service industry.

The biggest difference between the manufacturing and service industries is that the latter is closely related to our basic living standards and daily lives, which means that the cross-strait service trade agreement will have a direct impact on Taiwan’s sensitive core economic activities.

As Bureau of Foreign Trade Director-General Chang Chun-fu (張俊福) has said, the service industry accounts for 68.5 percent of Taiwan’s GDP and the number of employees in the service sector accounts for 58.76 percent of the total population. In the past, Taiwan’s small and medium-sized enterprises in the service sector have been able to make a living, but they are now going to have to deal with price dumping by Chinese companies entering the local market. It is clear that the service trade agreement will have a substantial impact on Taiwan.

Council of Labor Affairs Minister Pan Shih-wei (潘世偉) has said that the pact will bring Chinese investment to Taiwan, which will help boost market competition and improve the dynamics of the labor market. He also said that the agreement does not open Taiwan to Chinese labor.

However, if Chinese companies continue to operate the same way in Taiwan as they do in China, there are no guarantees that Taiwanese workers’ basic wages will not be further suppressed.

To conform with the strategies of international trade, the government should carry out a careful evaluation of which sectors would stand to benefit more before exporting them to other countries. For example, Taiwan has always had a strong service sector, so this sector should be exported to China instead of bringing in Chinese capital, which will only hurt employment opportunities and wages of Taiwanese.

According to some reports, the government still does not know which agency is in charge of the hair and beauty sectors, which leads to questions about the government’s assessment and consultation of this sector. This is the kind of information that the public only found out about at about the time the agreement was signed.

Why was transparency, openness and discussion absent from the whole process, from the planning stages to the signing of the pact?

The agreement affects many sectors, because the service sector is closely related to the public: restaurants and hotels, hair salons and beauty parlors, travel agencies, construction waste disposition, storage, car rental and repair, printing and publishing, online gaming, photography, computer software and hardware, information services, administrative consultation and even funeral services, as well as the capital-intensive financial services sector.

Usually, the service sector is quite labor-intensive. Since the financial services sector is more capital-intensive in nature, it should be negotiated separately. By including the financial services sector in the cross-strait service trade agreement, the public may feel that the government is trying to benefit certain enterprises or even move toward political unification.

The government claims that it signed the agreement to find a way out for Taiwan’s economy. Unfortunately, it seems that using this agreement to boost the economy is a bit like putting out a fire with gasoline — it will only cause Taiwan’s economic and employment situation to deteriorate even further.

If we want to resolve Taiwan’s economic problems, we should start out with the most fundamental aspects, such as income levels, consumer confidence and demand. The government must act cautiously when dealing with the cross-strait service trade agreement.

Kuo Chen-hero is an adjunct professor of economics at Soochow University.

Translated by Eddy Chang